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Why Porch Group Stock Was Up 28% in May

By Jon Quast - Updated Jun 8, 2021 at 10:59AM

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The company's rapid growth is turning heads on Wall Street.

What happened

Shares of real estate software and services company Porch Group (PRCH -5.15%) were up 28.6% in May, according to data provided by S&P Global Market Intelligence. The stock benefited from increased bullish coverage from analysts, and it got a boost from strong financial results for the first quarter of 2021. Now the company looks to keep the positive news coming as it continues its ambitious expansion plans.

So what

Looking at the chart for the month, the first prominent pop for Porch stock came on May 11, the same day that an analyst with Stephens initiated bullish coverage. According to The Fly, this analyst gave Porch a price target of $27, implying over 100% upside from where it was trading at the time. Other analysts also have bullish ratings. To summarize them, it appears Wall Street likes Porch's growth and expects it to earn a higher valuation.

A person is pleasantly surprised by what they see on their computer.

Image source: Getty Images.

On May 17, Porch released Q1 results highlighting the strong growth that these analysts appreciate. As reported, the company's revenue was up 77% year over year to $26.7 million. However, this isn't an apples-to-apples comparison because it has divested some of its business over the past year. Adjusting for these divestitures, revenue more than doubled from last year. This also contributed to the stock's outperformance in May.

Now what

Of course, if we are going to adjust for divestitures, we need to be fair and acknowledge Porch is a growth-by-acquisition company. So far in 2021, it's acquired home-inspection software company Palm-Tech, roofing-contractor software company iRoofing, and home insurance provider Homeowners of America (HOA). Porch now faces the challenge of integrating these companies and more into its portfolio and creating one cohesive business. That will be a challenge.

That said, it's easy to be impressed with what Porch is trying to build. The company aims to better serve the real estate market by having vast amounts of first-party data from its various software platforms. For example, rightly done, it can integrate data from its home inspections to more automate the issuing home-insurance policies -- that's an interesting approach. Furthermore, Porch is actively expanding into new geographies. For example, it just announced that HOA is now available in Illinois, its seventh state as it expands nationwide.

For 2021, Porch estimates it will generate revenue of $175 million to $178 million. For perspective, it generated just $73 million in 2020. Therefore, this looks like a growth stock to watch even after its outperformance in May. So far in June, it's already up another 13%.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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